Radio One, Inc. Harvard Case Solution & Analysis

Radio One, Inc. Case Solution

Introduction:

Radio One is the largest radio group which targets the African-Americans in the country and has achieved tremendous success through acquiring the under performing radio stations and using the skills like programming, marketing and effective operations to cut the cost and making those stations work better.
Radio One wants to acquire the 12 established urban stations in the top 50 markets, which will double the size of Radio One and will help it building the national platform.

Benefits and Risks:

The potential benefits of acquiring the 12 radio stations will be that it will make Radio One leader in the African-American radio stations and will help it get the national presence which will help Radio One to increase its revenue. The national presence will give rise to the opportunities of earning more revenues from the companies who want national exposure on the advertising which they run on the radio stations.
The expertise of the Radio one in the cost cutting will help in making all 12 stations to cut the cost and earn more cash inflows. The centralized functions of the Radio One will help create the synergies, which will help the radio stations becoming more cost efficient.
The acquisition will also help Radio One in expanding its operations into the other media industry like cable, recording and the internet. The increasing rate of the listeners will also help Radio One in generating more revenue and acquiring these stations will help it to generate more revenue.
However, there are also some risks involved in the acquisition of these 12 stations. Acquiring 12 stations would mean that the size of the deal will be very large and it might create difficulties in managing the integration of these stations.
The synergy benefits of these stations might get undermined due to the cannibalization from the existing listeners. The listeners of the already acquired Radio stations might get affected due to the large number of radio station company holds.
In the last three years, the company has been making losses and it might be a problem to raise the funds to acquire these stations. The loan providers will also provide loans with higher interest rates due to the high level of risk which might cancel out the benefits of acquiring the stations.
Another risk in the acquisition is the lack of expertise in the other media industry such as cable, recording and internet and due to this the company might not be able to generate the revenues, which it is anticipating from these channels.

VALUE ANALYSIS:

The risk free rate has been taken for the 30 year treasury yields of government bonds as the company has a long history. Furthermore, the market risk premium has been assumed to be 9% based on the large size of the company and its past success. The target debt to equity ratio consists of 20% debt and 80% equity and the corporate tax rate has been assumed to be around 35%..................

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